Gold Glows to Record High as Safe-Haven Demand Trumps Dollar Surge
On Monday, gold prices reached an all-time high, buoyed by persistent demand for safe-haven assets. Despite a rise in the dollar following indications of robust U.S. economic performance, gold remained resilient, indicating diminished expectations for an early interest rate cut.
Spot gold surged by 0.9% to reach $2,249.95 per ounce, whereas gold futures expiring in June increased by 0.8% to settle at $2,257.10. However, prior to the release of U.S. manufacturing data, gold futures had peaked at $2,286.35 intraday.
Despite an unexpected expansion in U.S. manufacturing activity, which tempered expectations of imminent rate cuts and led to increases in Treasury yields and the dollar, gold reached a new record high on Monday. Since gold is priced in dollars, a stronger dollar typically results in higher gold prices, rendering it less appealing to foreign buyers.
The ISM manufacturing purchasing managers‘ index saw an unexpected increase, rising to a reading of 50.3 from 47.8. This push above the crucial 50-mark signifies an expansion in manufacturing, marking the first time it has surpassed this threshold since September 2022.
The likelihood of a rate cut in June diminished to 56%, down from 64% the previous week, according to Investing.com’s Fed Rate Monitor Tool.
However, the robust economic data was juxtaposed with the core PCE price index, the Federal Reserve’s preferred inflation measure, which exhibited a greater-than-anticipated slowdown in February. This indicates that the recent upward surprises in inflation might have been deviations from the prevailing deflationary trend.
“We keep our forecast of a first cut happening in June,” Morgan Stanley said in a recent note. “We think that core PCE will average 0.22% from March to May and that these lower prints will be enough evidence pointing to sustained disinflation towards target,” it added.
The sentiment surrounding safe-haven gold has further been bolstered by escalating geopolitical tensions. Reports from Iranian and Syrian media indicated that Israeli strikes targeted a building adjacent to Iran’s embassy in Syria’s capital on Monday, intensifying regional tensions.
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